A Future With Fewer Bank Charters

Last week the audit, tax and advisory firm KPMG LLP released the results of its “2013 KPMG Community Banking Outlook Survey,” which surveyed 105 CEOs and senior executives of banking institutions between $1 billion and $20 billion in asset size. This latest edition of the firm’s annual survey revealed shocking changes from the 2012 version. First, 65 percent of respondents reported that they believe their banks will be involved in a merger or acquisition within the next year. Forty percent believe they will be acquirers, while 25 percent feel they will be sellers. In 2012 those numbers were tallied for a two-year outlook vs. this year’s one-year outlook, yet only 57 percent indicated that they believed they would be in a merger. Of that, 42 percent thought of themselves as buyers, and 15 percent as sellers.

The reasons offered by respondents for the large increase in sellers were not surprising — 61 percent cited political and regulatory uncertainty, and 39 percent listed capital and liquidity requirements from the Dodd-Frank Act and Basel III. This data makes obvious what we already knew: That federal government overreach and congressional gridlock are ever-increasing obstacles to business continuity and innovation, thus stymieing job creation. Further evidence of this was recognized in a release showing that this Congress has passed only 49 bills which have been enacted into law, the fewest number by any Congress since 1947.

The size of banks noted above was $1 billion to $20 billion in assets, which are pretty large community banks, considering that there are over 6,500 U.S. banks of less than $1 billion in assets. If those larger community banks are finding it this difficult to continue independently, how are the smaller institutions impacted? While I have no data to report, I would speculate that many of them are feeling the same pressure to sell. In addition to the issues listed above, for this group there are the impediments of recruiting and retaining quality professional staff and directors; the need to adopt necessary but expensive technology; inability to grow; and the artificially low interest-rate environment, resulting in a decreasing interest-rate margin.

I also know that there are many smaller banks that believe they will master the regulatory environment and overcome these other obstacles, and that they will continue to serve their communities profitably. There is a certain amount of entrepreneurship as well as public servitude among these kinds of institutions.

The impact of losing 25 percent of our bank charters within the next few years, let alone the next year, goes well beyond the loss of an individual bank. The continued existence of the community itself may be called into question. The size and voice of the financial services industry politically, economically and socially may also be compromised. Those of us who represent the banking community politically and regulatorily will be negatively impacted by this level of consolidation, too. Loss of income, industry volunteers and leaders, and political action committee funds cannot help but shrink the size and number of those representing the industry, thus further diminishing the industry voice. Last week I attended a meeting of my peers from throughout the country, and we spent much of our time discussing how we will operate in a world with 25 percent fewer charters. Needless to say, it is a frightening atmosphere for us to plan to work in, but that is exactly what we plan to do. While we cannot fully comprehend what our organizations may look like, and what services we will need to provide, we all recognize that it will be much different than today.

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